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For stock investors, picking the right country can be as lucrative as picking the right stock. Last year, the MSCI USA index gained a handsome 13.5%, not including dividends. But Poland gained twice as much; the Philippines, three times; and Turkey, four times.

Good overseas bets for 2013 include three of the four BRIC countries: Brazil, for long-term value; Russia, for a contrarian trade on a troubled but deeply discounted market; and India, for accelerating growth. China, the fourth BRIC, shows fewer signs that its economic growth is done slowing just yet.

Brazil's shares underperformed last year, rising 5.9% in local currency, but falling 3.5% in dollar terms, amid feeble economic growth—less than 1% in the third quarter. Even so, the International Monetary Fund expects growth to quicken to 4% this year.

Brazil's economic growth slowed sharply last year but could quicken to 4% in 2013.
Stuart Goldenberg for Barron's

Brazil's currency, the real, had soared in value versus the dollar since 2002, making the country's goods more expensive for foreign buyers. Over the past 18 months, the real has dropped 30% versus the dollar on a string of interest-rate cuts by Brazil's central bank. That, plus infrastructure spending ahead of the 2014 World Cup and 2016 Olympics, should give corporate profits and share prices a healthy lift.

Shares in Brazil are priced on par with U.S. shares at about 14 times trailing earnings, but U.S. profit margins are near record highs, while Brazilian companies have ample room for margin expansion. To see how both markets would look if profit margins reverted to ordinary levels, Cambria Investment Management calculated a 10-year average of earnings, adjusted for inflation. The results show Brazil at 12 times earnings and the U.S. at 21, says Mebane Faber, a co-founder of the firm.

Russia faces deep challenges, including a shrinking population and an economy that relies too heavily on oil. But the risks may be more than priced into the shares, which lost an average of 11.9% a year over the past five years, according to MSCI, and rank among the cheapest in the world at less than six times earnings. "The disconnect in Russia between stock valuations and fundamentals is larger than ever," says Arun Sai, a strategist for Credit Suisse.

Long-term investors should remain wary of Russia, but over the short term, even a modest recovery in valuations could produce outsized returns. Rising dividends could help lure investors, as a new law requires state-controlled companies to pay out at least 25% of their profits. MSCI Russia already yields 3.9%, versus 2.2% for the Standard & Poor's 500-stock index. Also, Russia's energy sector should benefit from a pickup in world economic growth in the second half of the year, especially because Brent crude prices in Europe, to which Russia's oil sector is tied, are much firmer than West Texas Intermediate crude prices in the U.S., where production is soaring. Credit Suisse likes oil and gas giant Lukoil (LKOH.Russia) at five times earnings, and convenience-store chain Magnit (MGNT.Russia) at 22 times earnings.

INDIA HAS ALSO BEEN a disappointment for investors, with shares there losing 8.3% a year on average over the past five years. The Indian economy grew by 5.3% in the third quarter, a peppy rate compared with much of the world, but a paltry one when compared with India's growth rate of more than 8% just two years ago. The government has introduced some reforms, raising prices for subsidized fuel and opening sectors like retail to foreign investors; watch for Wal-Mart. Investors seem heartened; Indian shares surged 15% in the second half of last year.

This year will be a crucial one for rekindling India's growth. A legislative breakthrough on tax reform or infrastructure funding would help; even without one, tame commodity prices could allow India to reduce interest rates. S&P predicts the economy will grow 6.5% this year. Indian shares have a long history of lofty valuations. For example, Hindustan Unilever (HUVR.India), a local maker of packaged food and household products, goes for 31 times 2013 earnings, about double the price of its global counterpart, London-based
UnileverUL -0.4072398190045249%Unilever PLC ADSU.S.: NYSEUSD44.02
-0.18-0.4072398190045249%
/Date(1425419152490-0600)/
Volume (Delayed 15m)
:
1201408
P/E Ratio
18.606271664987805Market Cap
56688633767.9336
Dividend Yield
2.9566679542820786% Rev. per Employee
367821More quote details and news »ULinYour ValueYour ChangeShort position
(UL). Yet a return to fast growth in India could prove such prices reasonable. For more modest valuations, Deutsche Bank, which has an Overweight rating on Indian shares, likes investment bank IDFC (IDFC.India) at 13 times 2013 earnings and Oil India (OINL.India) at eight times. T. Rowe Price's Umbarger recommends Adani Enterprises (ADE.India), whose business lines include coal, oil, and real estate and whose shares go for 11 times earnings.